Economic Convergence in the Euro Area: Coming Together or Drifting Apart?

By Jeffrey R. Franks, Bergljot B Barkbu, Rodolphe Blavy, William Oman, Hanni Schoelermann

January 23, 2018

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Jeffrey R. Franks, Bergljot B Barkbu, Rodolphe Blavy, William Oman, and Hanni Schoelermann. Economic Convergence in the Euro Area: Coming Together or Drifting Apart?, (USA: International Monetary Fund, 2018) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We examine economic convergence among euro area countries on multiple dimensions. While there was nominal convergence of inflation and interest rates, real convergence of per capita income levels has not occurred among the original euro area members since the advent of the common currency. Income convergence stagnated in the early years of the common currency and has reversed in the wake of the global economic crisis. New euro area members, in contrast, have seen real income convergence. Business cycles became more synchronized, but the amplitude of those cycles diverged. Financial cycles showed a similar pattern: sychronizing more over time, but with divergent amplitudes. Income convergence requires reforms boosting productivity growth in lagging countries, while cyclical and financial convergence can be enhanced by measures to improve national and euro area fiscal policies, together with steps to deepen the single market.

Subject: Business cycles, Economic growth, Economic integration, Financial cycles, Financial sector policy and analysis, Inflation, Monetary unions, National accounts, Personal income, Prices

Keywords: Area capital flow, Area goods trade, Area trade, Business cycle, Business cycles, Common currency, Convergence, Current account, Economic and Monetary Union, Euro, Euro area, Euro area goods trade, Euro introduction, Exchange rate, Financial cycles, Fiscal policy, Global, Higher-inflation country, High-inflation country, Inflation, Inflation convergence, Inflation differential, Intra-euro area goods trade, Monetary unions, Optimum Currency Area, Personal income, Synchronization, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/010
Stock No:

WPIEA2018010
ISBN:

9781484338490
ISSN:

1018-5941

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